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Choosing the best travel rewards credit cards to carry in your wallet can be a challenging task. There are so many factors that can influence this decision, including geography, spending patterns and your desired redemptions. Every once in a while, an issuer will introduce a new card that makes the choice even tougher, and today I want to go through the math on one of the hottest cards out there and answer the following question: When does it make sense to get the Chase Sapphire Reserve?
This analysis will look at two different angles. The first will compare the Sapphire Reserve to the Chase Sapphire Preferred Card, a similar card with slightly less-rewarding bonus categories but a significantly lower annual fee. The second angle will simply look at overall spending on the card by itself. I’ve recommended the card to many friends and family members who aren’t points and miles enthusiasts, so this portion of the post will simply look at how much you’d need to spend on the card to cover the annual fee.
A couple of additional notes. For starters, this analysis is looking solely at the return you’d get through spending rather than other perks on the card (like Priority Pass lounge access). This can be a nice benefit, but since every traveler would utilize this differently, it’s impossible to peg an exact value on it. In addition, I’ll be basing my calculations off TPG’s most recent valuations, which peg Ultimate Rewards points at 2.2 cents apiece. However, if you disagree with that number, I’ll also provide a link to a spreadsheet that allows you to input your own valuation and calculate your own break-even point.
Finally, I won’t be using the published annual fee ($450) on the Sapphire Reserve. As you’re hopefully aware, this card offers an annual $300 travel credit that is automatically (and instantly) applied to eligible purchases. Fortunately, Chase uses a very wide definition for travel, including merchants like Uber, Airbnb and even parking lots and garages. Here’s the full list, as published on Chase’s website:
“Merchants in the travel category include airlines, hotels, motels, timeshares, campgrounds, car rental agencies, cruise lines, travel agencies, discount travel sites, and operators of passenger trains, buses, taxis, limousines, ferries, toll bridges and highways, and parking lots and garages.”
I’d venture a guess that just about everyone reading this post spends at least $300 per year on these purchases, so my analysis will consider the “effective” annual fee as $150.
Let’s get started!
Break-Even Calculation – Part 1
As I mentioned above, the first part of this analysis will compare the Chase Sapphire Reserve to the Chase Sapphire Preferred Card. If you’re like me and TPG (at least before he was able to finally gain approval for the Sapphire Reserve), you may have used the Sapphire Preferred for a majority of your purchases. However, that may no longer make sense given the release of the Sapphire Reserve.
In order to complete this portion of the analysis, it’s necessary to calculate a break-even point between the two cards as it relates to the rewards on everyday spending. The Sapphire Reserve carries a higher annual fee but also awards additional bonus points for travel and dining purchases. Given the Sapphire Reserve’s travel credit discussed earlier, I’ll use the following annual fee numbers for this calculation:
- Sapphire Reserve: $450 – $300 = $150
- Sapphire Preferred: $95
This leaves you a difference of $55, so the calculations that follow will thus identify when the additional points you’d earn would cover the additional fee you’d have to pay each year.
As I mentioned above, the Chase Sapphire Reserve provides higher bonuses for certain purchases. You’ll earn 3x points on travel worldwide (excluding $300 travel credit) along with 3x points on dining at restaurants worldwide. The Chase Sapphire Preferred Card, on the other hand, only awards 2x points for both of these categories. This means that for every dollar you spend on travel or dining out with the Sapphire Reserve, you’re getting an additional 2.2 cents of value.
From here, the calculation is relatively straightforward:
Additional Annual Fee: $55
Value of additional points: 2.2 cents
Calculation: $55 / $0.022 = $2,500
This means that if you spend at least $2,500 on travel and dining purchases in a year, you’re better off going with the Sapphire Reserve. This breaks out to just $208.33 per month.
Here are the calculations that “prove” this to be true:
$2,500 x 2 points per dollar = 5,000 Ultimate Rewards points
5,000 x 2.2 cents = $110
$2,500 x 3 points per dollar = 7,500 Ultimate Rewards points
7,500 x 2.2 cents = $165
At this spending level, the additional 2,500 Ultimate Rewards points you’d earn on the Sapphire Reserve will exactly cover the additional $55 annual fee.
Break-Even Calculation – Part 2
The second part of the analysis will consider the difference between the Chase Sapphire Reserve and no card at all. This card actually makes sense for almost anyone out there given the multitude of ways to redeem Ultimate Reward points (including transferring them to partners like Hyatt and United). Unfortunately, this is a bit more complicated, simply because it entirely depends on how much you spend in each purchase category. As a result, I’ll split this further and look at how much you need to spend in both the bonus and non-bonus categories alone to cover the $150 effective annual fee. I’ll also consider two different valuations for Ultimate Rewards points: 2.2 cents apiece (based on TPG’s most recent valuations) and 1.5 cents apiece (based on the value you’d get when redeeming them directly for travel).
Here are the calculations:
Travel and Dining (TPG):
Points earned per dollar: 3
Value per point: 2.2 cents
Total rewards per dollar spent: 6.6 cents
$150 / $0.066 = $2,272.73
This means that if you spend $2,273 per year on travel and dining, you’ve already earned enough Ultimate Rewards points to cover the $150 effective annual fee. This works out to just $189.42 per month.
Travel and Dining (direct redemption):
Points earned per dollar: 3
Value per point: 1.5 cents
Total rewards per dollar spent: 4.5 cents
$150 / $0.045 = $3,333.33
Even at the low end of the spectrum, you won’t need to spend a ton of money in this category to cover the $150 effective annual fee, just $3,333.33 (or $277.78 per month).
Non-bonus spending (TPG):
Points earned per dollar: 1
Value per dollar spent: 2.2 cents
$150 / $0.022 = $6,818.18
Utilizing TPG’s valuation, you’d need to spend $6,818.18 on the Sapphire Reserve on purchases outside the travel and dining categories to cover the $150 effective annual fee, which works out to roughly $568.18 per month.
Non-bonus spending (direct redemption):
Points earned per dollar: 1
Value per dollar spent: 1.5 cents
$150 / $0.015 = $10,000
When you utilize the value of points when redeemed directly for travel, you’d need to spend an even $10,000 per year (or $833.33 per month) in non-bonus categories to cover the $150 effective fee.
Of course, chances are quite high that you would have purchases in both of these categories during the course of a year. You also may value Ultimate Rewards differently. To help you with these decisions, I have put together a simple Excel spreadsheet for both of these scenarios (Reserve vs. Preferred and Reserve vs. no card). Simply input your valuation of Ultimate Rewards points and monthly spending in the red boxes and let Excel do the rest!
Here’s the link to access the file: Sapphire Reserve break-even spreadsheet.
As you can see, the Chase Sapphire Reserve can make sense for a wide variety of readers. You may be a seasoned veteran when it comes to points and miles and don’t think twice about applying for a card with a $450 published annual fee. However, even if you’re brand new to this hobby, this card can be incredibly rewarding (especially when you factor in the 50,000-point sign-up bonus and all of the other perks excluded from the above analysis). Hopefully this post has shed some light on just how little you’d need to spend to come out ahead on the card.
What are your thoughts on the Sapphire Reserve?
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This is one of the top premium cards out there since you earn 3x on all travel (excluding $300 travel credit) and dining and have access to great perks like a $300 travel credit each cardmember year, 50% more value when you redeem points for travel through Chase Ultimate Rewards and you get elite travel benefits like Global Entry application fee rebate, Priority Pass Select and special rental car privileges.
- Earn 50,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. That's $750 toward travel when you redeem through Chase Ultimate Rewards®
- Named "Best Premium Travel Credit Card" for 2018 by MONEY® Magazine
- $300 Annual Travel Credit as reimbursement for travel purchases charged to your card each account anniversary year
- 3X points on travel immediately after earning your $300 travel credit. 3X points on dining at restaurants & 1 point per $1 spent on all other purchases. $0 foreign transaction fees.
- Get 50% more value when you redeem your points for travel through Chase Ultimate Rewards. For example, 50,000 points are worth $750 toward travel
- 1:1 point transfer to leading airline and hotel loyalty programs
- Access to 1,000+ airport lounges worldwide after an easy, one-time enrollment in Priority Pass™ Select
- Up to $100 application fee credit for Global Entry or TSA Pre✓®